NZ economic growth slower than expected

THE New Zealand economy grew at half the pace analysts were expecting in the first three months of the year as drought across the North Island sapped milk production and dragged the agriculture sector down.

The kiwi dollar fell after the figures came out.

Gross domestic product (GDP) grew 0.3 per cent to $NZ37.1 billion ($A31.84 billion) in the three months ended March 31, from a pace of 1.5 per cent in the December period, according to Statistics New Zealand

That's half the 0.6 per cent rate predicted in a Reuters survey of economists and below the 0.5 per cent pace forecast by the Reserve Bank of New Zealand in its June monetary policy statement published last week.

The economy grew at an annual 2.5 per cent, in line with expectations, and activity in the March quarter was 2.4 per cent higher than the same period a year earlier.

Agriculture, forestry and fishing shrank 4.8 per cent due to the arid climate conditions in the quarter, trimming 0.3 of a percentage point from GDP

The reserve bank had expected the drought to trim about half a percentage point from economic growth. Agriculture shrank 4.7 per cent, the biggest fall since the June 2010 quarter.

"The impact of the drought showed up as expected, with lower milk production and higher slaughter numbers for the first three months of 2013," GDP project manager Jason Attewell said in a statement on Thursday.

"We expect the drought will impact on the economy for several quarters, as lower herd numbers and conception rates will affect future production."

The New Zealand dollar fell as low as 78.38 US cents from 78.90 cents immediately before the figures were released.